The political economy of the Arab Spring: searching for the virtuous circle
PAUL AARTS and SAMIR MAKDISI 28 July 2016
No matter how tragic the short and medium-term consequences of some of the uprisings, their outbreak might eventually lead the Arab world to enter steadily the trajectory to democracy and good governance.
Amr Nabil/AP/Press Association Images. All rights reserved.
Amr Nabil/AP/Press Association Images. All rights reserved.
In a recent piece in The Washington Post, Marc Lynch argued it’s wrong to say that the Arab uprisings have failed. “Success or failure”, he contends, is not a helpful way to understand these ongoing societal and political processes. “Let’s not talk in these binary terms”, he concludes, noting that after five years new political systems have taken shape that must be understood on their own terms – which by the way is a correct though not a novel finding.
We have seen this before as is shown by ample research on regime transitions since WWII, and more in particular after the end of the Cold War. Here, we may refer in particular to the work of Barbara Geddes and her team and to Steven Lewitsky’s and Lucan Way’s work. It was found that more than half of regime breakdowns were transitions from one autocracy to another. Fewer than one-quarter of leadership changes resulted in “democratization” or a move towards democratic governance (but in a majority of cases remaining short of achieving a consolidated “democracy” as commonly understood).
So nothing new here. There is no linear “transition” towards democracy, which is very much against the school of thought of those scholars, both inside and outside the Arab World (and – perhaps more understandably – among many activists), who may suffer from what the Germans call Zwangsoptimismus (translated as “forced optimism”). Of course other scholars have been more cautious, emphasizing the implementation of inclusive political and socio-economic policies as pre-requisites for a successful transition to democracy.
Dignity and bread
A basic motive behind the initial uprisings was the wish to break out of the autocratic hold and achieve some of form of political freedom. But what greatly reinforced this wish were growing levels of unemployment, especially youth unemployment that came to reach relatively high levels. Subsequently three of the uprisings turned into brutal civil wars, intertwined with active foreign interventions, with all their horrific socio-economic and political consequences.
So far, in one case (Egypt) it has effectively led nowhere. Only Tunisia is a more promising case, though the successful implementation of more inclusive economic policies, including the tackling of the issue of unemployment, is yet to be seen.
Generally speaking, the pro-democracy protests have been less focused on the question of economics than politics. Thus, while the Arab Spring was to a large extent rooted in protest at the neo-liberal “solution”, these protests remained basically political, issues of economic injustice or dysfunction attracting lesser attention. And what indeed evolved following the uprisings was a further worsening of the economic and job situation.
Hence whereas the removal of sitting dictators could be interpreted as a sign of success for the Arab uprisings, the consequent worsening situation, including job prospects, is a countersign of their non success, at least so far. Different sources give different numbers when it comes to jobs needed in the near future. But no matter which source is consulted, the numbers are staggering – in particular when looking at youth unemployment. In general, young females are three times less likely to find employment than young males.
Consent vs coercion
Not only have economic conditions worsened since 2011, and unemployment has been on the rise, new regimes (like in Tunisia) face the great dilemma of how to recover economically while maintaining a stable transition process. Seeking international assistance traditionally forces them to introduce market-oriented reforms (imposed by international financial institutions like the IMF and the World Bank) – such as slashing subsidies and laying off government employees. By doing so they risk losing support of the people that brought them to power, i.e. they run the risk of losing recently acquired legitimacy.
The alternative of not giving in to demands from these institutions, and “listening to the people”, may lead to an even deeper economic malaise with uncertain political consequences. Hence the bottom line and paramount question: How to reconcile market-oriented reforms with social justice?
This is the great challenge facing the post-uprising MENA region: creating a balance between the need to restore economic stability while generating growth prospects and implementing more equitable socio-economic policies. This challenge has been successfully met elsewhere as in the case of Chile. In the existing conflictual Middle Eastern region this task will be much more difficult than otherwise would have been the case.
Searching for the ‘virtuous circle’
A lot of research has been done on the link between regime type and economic development. As Przeworski has summarized: there is no reason to believe that on average non-democracies have a higher rate of growth than democracies. Or, quoting another economist, Dani Rodrik: “For each authoritarian country that has managed to grow rapidly, there are several that have struggled. For each Lee Kuan Yew of Singapore, there are many like Mobutu of the Congo.”
Whether democracies perform better economically, however, is open to divergent views. There is just one finding that is robust: It is certain that established democracies are more likely to survive in countries with higher per capita income (India is a notable exception while growing authoritarianism in Erdogan’s Turkey – clearly apparent well before the recent post-coup developments – might throw a spanner in the works of democratic theory).
It looks like “democracy seldom appears in economically underdeveloped countries, and when it does, it does not last long.” Does this mean that, as Tarek Massoud claims, a healthy economy then is a kind of prerequisite for an inclusive policy? Does this imply that democratization must be put on hold? No, of course not, is Massoud’s reply.
It is without doubt that democracy is important in its own right, but what might be relevant to point out is the need for an “enlightened political leadership that prioritizes building competent state institutions, fighting corruption, and expanding economic opportunity.” The ideal then is to achieve a virtuous circle where governance reforms support growth which in turn leads to better governance and even faster growth.
In this context, the growth of the middle class and the rise of education levels can have a modernizing influence that helps in creating more favourable conditions for a move towards a democratic environment. (Though this is not to claim that the middle class always and everywhere is the “vanguard of democratization”).
Specifically in the case of the Arab region, this has generally not been the case (in contrast with other regions of the world), mainly on account of the negative political influences of abundant oil wealth in already existing non-democracies (in the oil-rich Gulf region) as well as raging conflicts, including the Arab-Israeli conflict that is yet to be justly resolved. The interaction of these factors has drawn in corrosive foreign interventions that further destabilized the region, thereby hindering economic development.
A post-work, deindustrialized future
It’s a truism to notice that in this grim context finding enough jobs will be an uphill battle – if not a mission impossible. Add to the above-mentioned specifics of the MENA region – where oil wealth has tended to retard potential economic diversification – the global trend towards a “post-work” future (with more time for leisure made possible by automation), and it will be hard to be optimistic. Rather than repel the advance of the machine, the West ánd the MENA region need to work on a revolution in social thinking.
For newcomers to the world market it would be difficult to emulate the industrialization experience of the Four Asian Tigers, or the European and North American economies before them. Many (if not most) developing countries are becoming mostly service economies without having developed a large manufacturing sector – a process which Dani Rodrik has called “premature deindustrialization.” This also applies to countries in the MENA region, though it may vary per country.
In general, however, as Rodrik argues, what the region most likely is going to miss is crucial building blocks to be able to come to some kind of a less autocratic system. Let’s remember that indeed some of these “building blocks of durable democracy have been by products of sustained industrialization: an organized labor movement, disciplined political parties, and political competition organized along a right-left axis. The habits of compromise and moderation have grown out of a history of workplace struggles between labor and capital.”
Threat to stability
This has serious implications, also for the relative “success story” of Tunisia: The new government may have gained “input legitimacy” thanks to its election by the people, but that does not automatically entail “output legitimacy” in terms of policy delivery – more concretely: in particular more jobs for the massive numbers of unemployed and underemployed youth.
No jobs lead to disappointment. What comes after is difficult to say. Unless this problem is successfully addressed isn’t a likely outcome a massive permanent class of jobless people whom the state will see as a persistent threat to stability? This in its turn might necessitate repressive-exclusionary modes of governance.
Against this backdrop, the MENA region will most likely travel a rocky road to an unknown future. It’s against this pessimism of the intellect that we have to put the optimism of the will, leading to our belief that, no matter how tragic the short and medium-term consequences of some of the uprisings, their outbreak might eventually lead the Arab world to enter steadily the trajectory to democracy and good governance.
Qatar buys chunk of Empire State Building
Empire State went public in 2013 as real estate investment trust
UPDATED 10:51 AM CDT Aug 24, 2016
7. Empire State Buildin
Some of the Middle East's vast oil riches are being plowed into Manhattan's most iconic skyscraper.
The sovereign wealth fund of Qatar made a $622 million investment on Tuesday in the Empire State Realty Trust, which owns and operates the Empire State Building. The purchase gives the Qatar Investment Authority a nearly 10% stake in the building.
The Qatar Investment Authority was founded in 2005 to grow the money made off the tiny OPEC Gulf nation's natural resource. Qatar also has stakes in Tiffany, Volkswagen and Credit Suisse, among others.
Qatar is also hosting the 2022 World Cup. The nation has weathered the cheap oil storm better than Saudi Arabia and other Middle East nations. That's because Qatar has built up a big war chest of oil money to protect it during leaner times. It also has a relatively tiny population of barely 2 million people to support.
John Kessler, president of the Empire State Realty Trust, welcomed the Qatari investment in a statement, calling it an "endorsement" of the company's "irreplaceable assets."
It's the latest bet on the world famous Empire State Building by a foreign investor and a further sign of how hot Manhattan's real estate market is.
Other major shareholders of the Empire State Realty Trust include Norway's massive sovereign wealth fund.
Japanese investment firm Shinko Asset Management as well as Australian real estate investor Resolution Capital also own major stakes in Empire State, according to FactSet.
Empire State went public in 2013 as a real estate investment trust (REIT). The IPO raised nearly $1 billion.
Dubai e-services gather speed
The Roads and Transport Authority's EC3 module is a case in point, where it integrates various modes of commutation.
Dubai is busy integrating public services electronically to make them hassle-free and user-friendly. E-governance remains a focus area, and this includes e-recreation facilities using a card. Entry to public parks - from the first quarter of next year - shall be through a multipurpose NoL card. The plan is to reduce long queues in public places and make it easy for people to avail of these facilities. The system is currently in place at Mushrif Park, Al Mamzar and Zabeel Park. Electronic data will also help authorities manage civic services like parking and other issues better.
The vision of the leadership is to make the city smarter, sustainable and happier. Different departments are connecting with each other and working together - electronically. The Roads and Transport Authority's EC3 module is a case in point, where it integrates various modes of commutation. Linking parks with transport is a first of its kind in the region. Residents can simply hop on a bus using the Nol card, and hop off for a stroll in the park. The masterplan, known as Smart Dubai Government Shared Services, aims to link more than 50 government entities by the year 2021. It will bring together millions of consumers under one umbrella. The scope of the NoL card has been expanded. No cash for government services, just swipe and go, even for fun. This mode of electronic payment is set to gain currency when private partners come on board. Emirates ID cards are already being used at e-immigration gates. NoL is another step in the e-direction. Digital oneness is closer than you think.
Two ways to ensure every child gets an education
This goal is still a distant prospect for far too many children.
When I visited the Zaatari refugee camp in Jordan earlier this year, I met with children who told me what education means to them. For Syrian youths who have been forced from their homes and have lost everything, education is about more than qualifications or test scores; it embodies their hope for the future.
Children like those in Zaatari, and millions of others around the world, are central to the work of the International Commission on Financing Global Education Opportunity, which I joined last September. This commission is committed to the fourth United Nations Sustainable Development Goals, which aims, by 2030, to "ensure inclusive and equitable quality education and promote lifelong learning opportunities for all."
This goal is still a distant prospect for far too many children. With so many development issues demanding our attention, policymakers should bear in mind that education is not just a good in itself; it is also a catalyst for many other development gains.
As the old African proverb goes, if you educate a girl, you educate an entire nation. Ensuring access to quality education for children, especially girls, will lead to fewer child marriages and less child labor and exploitation. And education has long-term societal benefits: aside from increased political engagement, educated children contribute intellectual capital and pursue entrepreneurial opportunities when they grow up, boosting economic growth.
Tackling the education challenge needs to start from two principles embedded in the goal.
First, "for all" means that we must focus on the children who have been left behind. Millions of children are out of school or are receiving a substandard education because of who they are or where they live. According to the UN High Commissioner for Refugees, refugee children are five times more likely to be out of school than other children in the countries to which they've been displaced. And in all but two African countries, girls remain less likely than boys to complete a primary education. Getting these children into school will require new approaches that directly address their exclusion and make schooling genuinely accessible and relevant.
Second, "quality": Education must be effective, so that children actually learn. For the 61 million children who are out of primary school, formal education is beyond reach. But, just as urgently, more than one-third of children of primary-school age - 250 million - are not learning the basics, according to the UNESCO Education for All Global Monitoring Report. Half of these children have been in school for at least four years. We must address the barriers to learning, both in the classroom and at home, by improving the quality of teaching and classroom conditions and teaching parents how they can support their children's education. Upholding these two principles will require increased investment. Last year, UNESCO calculated that governments must double education spending as a share of national income to achieve the 2030 goals. This will require increased revenue from taxation and stronger efforts to collect what's owed. Donors also need to live up to their aid commitments and target aid more effectively. For example, less than one-third of education aid goes to Africa, even though the region accounts for almost two-thirds of out-of-school children. Moreover, at the moment, education budgets are often regressive, with almost half of spending in the poorest countries allocated to the most educated 10% of the population.
Fixing education investment requires action in two key areas.
First, we need equitable financing, with more investment in early childhood care and development, where there is the biggest potential for returns. Budgets must be focused on the most excluded children, and primary education must be free at the point of use, so that every child can learn. We also urgently need more transparency and accountability, so that budgets are visible and communities have a say in school governance.
Second, we need to strengthen domestic education systems so that governments see themselves as the guarantor of accessible, quality schools for their citizens, rather than abdicating that role to outside development agencies. In particular, we should push for partnerships between government and business to boost domestic resources for education, and eliminate illicit capital flows that deprive governments of the means to fund it, such as tax evasion and money laundering across national borders.
With these priorities in mind, the education commission will deliver its recommendations at the UN General Assembly on September 18, when the Secretary-General will receive and act on them. The education commission will have succeeded if we are able to leverage the funding and political will to ensure that every child learns, regardless of their income, location, or social status. Our work will not be complete until that happens.
How Dubai is furthering the region's green agenda
Finding solutions to these problems is not always clear, particularly when improving energy security and addressing climate change may seem to be two conflicting goals.
In April, the World Meteorological Organisation (WMO), a United Nations body, released its latest 'Status of the Global Climate' report, which detailed the string of climate and weather records that were broken in 2015 worldwide. Given the upward trend we've seen in recent years, it's unsurprising that 2015 shattered all previous records, including global temperature records, with exceptional rainfall, devastating droughts, unusual cyclone activity and intense heatwaves around the world.
"The year 2015 will stand out in the historical record of the global climate in many ways," said WMO experts. These shocking statistics serve as a timely and critical reminder of the sheer scale of destruction climate change is having on our planet and the stark outlook for its future. It is imperative that action is taken now.
Finding solutions to these problems is not always clear, particularly when improving energy security and addressing climate change may seem to be two conflicting goals. Countries are challenged with achieving reliable and affordable energy supplies, while at the same time reducing emissions into the atmosphere. In December 2015, a historic agreement to combat climate change was reached at COP21, also known as the 2015 Paris Climate Conference. For the first time in over 20 years of UN negotiations, all 195 country members reached a universal agreement on climate change, with the aim of keeping global warming below 2°C. As a member of the UNFCCC, the GCC has pledged to implement a number of green initiatives to drive the global green agenda which include; renewable energy initiatives, R&D in technology, water conservation and energy efficiency improvements.
More recently, in April this year, representatives of States from all around the world, visited New York to sign the original text of the Paris agreement on Climate Change which was first adopted at December's Conference of the Parties (COP) 2015.
Following the landmark Paris COP21 meetings, a further meeting of the Conference of Parties (COP22) with the UNFCCC will be held in Marrakech, Morocco, in November this year, at which many of the top decisions struck in the French capital will be fleshed out into action plans. This includes continued work on the determined commitments for reducing country carbon emissions and an even stronger emphasis on the action plans for regions, cities, businesses and the civil society, where the World Green Economy Summit 2016 will be a key contributing platform.
For two years now, Dubai has hosted the World Green Economy Summit (WGES) to continue its steady and forward march aiming to achieve its ambition to become "The Global Capital of the Green Economy", facilitate a platform for green leaders to come together to discuss partnerships and develop cleaner and green initiatives to create a sustainable future. This year WGES 2016, under the new theme of 'Driving the Global Green Economy', will help the region follow up on commitments made through the Dubai Declaration and create strong links to the UN Climate Agreement 2015 and the Sustainable Development Goals 2030 following the directions set at COP22 in Marrakech. Dubai is taking major strides to drive the green economy, with a series of initiatives announced over the past 12 months. In November 2015, His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE, and Ruler of Dubai, announced the launch of Dubai's Clean
Energy Strategy 2050, which sets a target for the provision of 7 per cent of Dubai's energy from clean energy sources by 2020, increasing to 25 per cent by 2030 and 75 per cent by 2050. To further the region's green economy, DEWA announced in January 2016 that it has opened consultancy tenders for a Dh100 billion green fund - the Dubai Green Fund. As part of the region's wider green energy investment programme, the "Dubai Green Fund" will provide financing for investors in Dubai's clean energy, and affirms the Emirate's commitment towards pioneering green initiatives and sustainability.
In addition to the Green Fund, Dubai's Clean Energy Strategy 2050 will also see the planned capacity of Dubai's Mohammed bin Rashid Al Maktoum Solar Park upgraded to 5,000 megawatts from 3,000MW previously. The Solar Park, which is the largest single-site strategic renewable energy project of its kind in the world, is a testament to the region's commitment to building and developing a greener economy, to achieve the UAE Vision 2021 of a truly sustainable environment with the lowest carbon footprint in the world.
We are very proud of the UAE's achievements. We have accomplished significant success in photovoltaic energy. Energy, sustainability and new sources of power are all themes that are on the global agenda, as the world faces growing challenges with fluctuating oil prices. We have identified sustainability as a key theme in our upcoming Dubai Expo 2020 in recognising the undisputable fact that all economies have to focus on green strategies.
2016 is a pivotal year for Dubai and its continuation of green industry development. With the announcement of Dubai's Clean Energy Strategy 2050, the initiatives related to water and energy management programmes will get additional momentum and really showcase the regions ability to have a green voice on a global level. This year, Dubai's World Green Economy Summit (WGES), will be the perfect platform for the region to showcase how far it's come in just two years and shine a spotlight on exciting plans for the future.
Oil prices rally; tough task ahead
Oil's comeback has finally brought to an end the bearish trend prevalent all these months.
As oil prices crossed the psychological barrier of $51 a barrel, it was indeed a sign of recovery. The fact that the crude was holding at $50.80 a barrel - at the close of markets over the weekend - signifies a bullish trend, which will have a positive impact on a sluggish global economy. Oil's comeback has finally brought to an end the bearish trend prevalent all these months. If the black-gold continues to sustain itself in the bullish territory, and rise further, it will be a good sign for production, employment and investments. Stock markets in Dubai led an advance across most Gulf Arab equities after oil posted the best since April. Dubai's DFM General Index advanced 0.9 per cent, the biggest gain in a week. It is a boost for market sentiment. Rumours of a production deal between Saudi Arabia-led Opec and Russia, the world's largest producers, and bullish supply data has enabled oil to rise. It is hoped that they might agree on a deal to freeze production level, enabling oil to get the best market price. But there could be a slip as well, if Iran decides to play foul. Tehran's adamant attitude to pump as much oil as possible in April, as it returned from sanctions, had torpedoed an earlier understanding among the Opec and other oil producing nations. It remains to be seen what course of action it takes this time around.
What is inevitable is a deal from Opec with a long-term plan of action to buoy oil prices. This cannot be delayed any further. The producers have to keep an eye on demand and supply equation, and a tab on Shale's manoeuvring. A decline in US crude and gasoline inventories pose real challenges. Analysts believe Friday's rally is unlikely to sustain for a long time, as a number of factors will impact it in due course of time. The foremost among them is a weak dollar and sluggish trend in bourses. The reason is that greenback's slide will make oil cheaper for buyers using foreign currencies. Whatever may be the case, the traders expect the crude glut to shrink and this could be a game-changer.
Oil price hike gives GCC near-term relief
Kuwait relies on hydrocarbon revenues for around 90 per cent of revenues
Rise in prices unlikely to have major impact on sovereigns' creditworthiness, says Moody's
The GCC countries will face some near-term relief from the current higher oil prices, but the hike is unlikely to have a major impact on GCC sovereigns' creditworthiness, Moody's Investors Service said.
The ratings agency said the near-term would led to narrower fiscal and current account deficits than it previously expected. "In particular, Kuwait, Qatar and Oman are set to be the main beneficiaries of higher oil prices in the short term, given the larger reliance on oil for government revenues," it said.
Moody's now forecasts a deficit of three per cent of GDP (gross domestic product) for Kuwait, 5.5 per cent for Qatar and 15.1 per cent for Oman in 2016.
On the external side, higher oil prices will benefit Kuwait, the UAE and Oman the most by reducing the current account deficits by an average of four to seven per cent of GDP (with Kuwait facing the largest gains), followed by Qatar, Saudi Arabia and Bahrain, it said.
The UAE, Kuwait and Qatar are the most strongly-positioned GCC sovereigns in terms of both the size of their financial assets compared to government spending and low fiscal break-even oil prices, while Saudi Arabia, Oman and Bahrain have a higher fiscal break-even oil price along with much lower financial assets on which to draw, which contributes to the ratings gap, the ratings agency said.
Over 2016-17, Moody's projects fiscal gains of around four to five per cent of GDP for Qatar and 3.5 to 4.5 per cent of GDP for Oman, and smaller but sizeable gains of 1.5 to three per cent of GDP for Saudi Arabia, the UAE and Bahrain.
It said Kuwait, which relies on hydrocarbon revenues for around 90 per cent of revenues, will be able to generate an additional six to seven per cent of GDP in revenues annually over 2016-17 given higher oil prices, bringing its fiscal deficit down to three per cent of GDP in 2016 and almost zero per cent in 2017, from its previous forecasts of 9.9 per cent and 6.4 per cent, respectively.
The ratings company argued that the GCC sovereigns' credit profiles would remain under stress despite prospects of somewhat higher oil prices in the near term than expected earlier this year.
"While we have revised upwards our near-term estimated prices for oil, our medium-term expectation of 'lower for longer' oil prices remains unchanged. We, therefore, expect GCC countries to continue to face economic, fiscal and external challenges," said Steffen Dyck, a senior credit officer at Moody's.
"Given the significant challenges ahead, government actions to address structural problems exposed by significantly lower oil prices will remain key to sovereign creditworthiness," said Dyck.
Moody's expects oil prices to remain low, moving within a $40 to $60 per barrel range over the medium term. In June, Moody's raised its nearer term oil price estimates for Brent crude to $40 per barrel in 2016 and $45 in 2017.
It pointed out that the oil market's recent rise has been supported by transitory factors, including temporary supply disruptions in Canada and violence in Nigeria which has curtailed production, as well as technical factors such as a weaker US dollar and financial market activity.
"However, global oversupply will continue to depress oil prices for an extended period. Capital spending, which determines future production capacity, has dropped substantially and the US rig count has declined by about 70 per cent. But non-Opec supply remains at historically high levels and the global competition for market share is not over," it said.
Saudi Arabia and Russia have both increased production to their highest levels since the early 1990s, and Iran continues to increase its production.
"The low oil price environment continues to have material, and in some cases profound, implications for economic growth and the balance sheets of GCC sovereigns, which largely rely on oil and gas to drive growth, finance government expenditures and generate hard currency for servicing foreign-currency-denominated debt," it said.
Deloitte: Middle East a growth potential for global luxury goods sector
The global luxury goods sector is expected to grow more slowly in 2016, at a rate many retailers may find disappointing, according to Deloitte’s annual report entitled Global Powers of Luxury Goods 2016 Disciplined innovation
The growth rate is slowing in important markets such as China and Russia, although some markets continue to perform well and there are pockets of opportunity across the globe. India and Mexico for example are growing quickly, and the Middle East offers further growth potential.
The report examines and lists the 100 largest luxury goods companies globally, based on the consolidated sales of luxury goods in financial year 2014 (which we define as financial years ending within the 12 months to 30 June 2015). It also provides an outlook on the global economy; an analysis of merger and acquisition activity in the industry and discusses the key forces shaping the luxury market.
“The Middle East represents a big opportunity for luxury brands. Luxury malls in Abu Dhabi and Dubai have helped put these cities on the map for the industry, and the United Arab Emirates as a whole continue to enjoy strong growth,” said Herve Ballantyne, partner and consumer and industrial products leader at Deloitte in the Middle East. “Well-established big-name brands perform well in the region, and tourism is a major driver of sales in Dubai. Although the region is likely to feel the impact of political unrest as well as global economic uncertainty, but further growth is expected overall.”
"As the Kingdom of Saudi Arabia seeks to diversify its oil-based economy, retail is a sector that is likely to benefit given the expected growth in religious tourists over the next decade and ongoing private sector planned investments such as the recent announcement that the Majid Al Futtaim group will be adding approximately 112,000 sqm of retail space in Riyadh,” he added.
The world’s 100 largest luxury goods companies generated sales of $222 billion in financial year 2014, 3.6 percent higher year-on-year. The average luxury goods annual sales for a Top 100 company is now $2.2 billion.
“There is a shift in the luxury path-to-purchase,” said Ira Kalish, Chief Economist for Deloitte Global. “Empowered by social networks and digital devices, luxury goods consumers are dictating increasingly when, where and how they engage with luxury brands. They have become both critics and creators, demanding a more personalized luxury experience, and expect to be given the opportunity to shape the products and services they consume.”
Key findings from the report include:
Discipline by design: luxury’s new normal – The luxury goods sector has now passed the mid-point of the ‘decade of change.’ The first half was characterized by the Chinese consumer and the explosion in the use of digital technology. The second half of the decade is expected to be characterized by discipline. The external environment is likely to change in a number of crucial areas: an evolution in consumer buying behaviors; the merging of channels and business model complexity; an increase in international travel; the growing importance of the millennial consumer; and the continued impact of the global economy. All of these factors create opportunities for the luxury goods sector.
Demand for luxury goods still growing profitably – Sales for the world's 100 largest luxury goods companies continued to grow despite economic challenges, although the rate of growth was less than in previous years. Profit margins were higher than the previous year and the polarization of company performance was greater, with more high performers achieving double-digit luxury goods sales growth and profit margins, and also more companies experiencing double-digit sales decline.
Italy is once again the leading luxury goods country in terms of number of companies – With 29 companies in the Top 100 it has more than double the number based in the US, which has the second-largest number. However, Italian companies account for only 17 percent of luxury goods sales in the Top 100 – these predominantly family-owned Italian companies are much smaller, with average luxury goods size of $1.3 billion, compared to $3.1 billion for US companies.
Egypt's economic and fiscal crisis
Rescuing the sinking ship
Just last week, the Egyptian government and a delegation of the International Monetary Fund (IMF) reached a staff-level agreement about a 12 billion US-dollar loan package. Egypt hopes to restore confidence in its crippled economy and attract more investors. But is this deal the right answer for Egypt's economic problems? Sofian Philip Naceur talked to Amr Adly, a non-resident scholar of the Carnegie Middle East Center
Egypt is in the midst of an economic and fiscal crisis. Why is the country seeking this loan from the IMF?
Amr Adly: Egypt′s situation is serious. The country is currently facing a deficit in both its balance of trade and its balance of payments. There is a severe lack of hard currency in Egypt, which is the main reason for the exchange rate crisis. The shortage of US dollars has put a lot of pressure on the Egyptian pound, feeding inflation – the latter fell just short of 15 percent in June 2016. This has necessarily had a negative impact on the economy. Low growth combined with high inflation is causing the economy to spiral. Although not technically in recession, the outcome so far has been a slow-down, which is why the government has tried to interrupt the process with a massive influx of foreign capital. The Scharm El-Sheikh Economic Conference, held in March 2015, was just one of Egypt′s attempts to attract investment from abroad. In sufficient quantities, this would have aided economic recovery and checked the imbalance. Now the government′s only chance of escaping this downward spiral is to borrow capital. Egypt hopes that by striking a deal with the IMF, it will be able to stabilise the economy at a macroeconomic level.
Egyptian governments reached deals with the IMF in 2011 and 2012, but the Supreme Council of the Armed Forces (SCAF) and the government of former President Mohammed Morsi never implemented these agreements. Why did the current government agree to the IMF loans?
Adly: This loan was not the only option. For political reasons, Egypt was on the receiving end of a huge amount of cash aid from the GCC countries (Gulf Cooperation Council) post-2013 – this money had no economic strings attached. But the plunge in oil prices has made it difficult for the GCC countries to continue their support for Egypt. The regional and global economies have both suffered.
Container ship passing through the New Suez Canal near Ismailia, east of Cairo (photo: picture-alliance/dpa/A. Shaker)
The Suez Canal extension as a demonstration of power: estimated to have cost almost €8 billion, the project was intended not only to breathe new life into Egypt's sluggish economy, but also to buff up President Sisi′s international image. Yet, as Amr Adly explains, "this project will not have a reforming effect on the Egyptian economy and enhance its performance, thereby creating a huge number of new jobs and raising the living standard of the Egyptian people. The state and the military may be capable of getting a major infrastructure project up and running, but there's no plan for development; no package of measures with a particular goal″
That said, this aid still proved insufficient to re-structure the state budget, which is hugely in deficit. Egypt's economy today has the same problems it had in 2013. The Gulf is neither willing nor able to supply Egypt with the same level of aid anymore. This is why the United Arab Emirates extended Egypt's quota in the IMF and paid around 1 billion US dollars in 2015 to allow Egypt to seek this massive loan. The deal between Egypt and the International Monetary Fund is one of the biggest loans in the organisation′s history.
Is this deal with the IMF an appropriate measure to tackle the fiscal and economic crisis?
Adly: The austerity measures and the devaluation of the pound, agreed on by the IMF and the Egyptian government, would have happened anyway. By implementing them in co-operation with the IMF, however, the government can make it look as if the IMF is responsible for these unpopular measures. I don′t have a problem with the IMF deal per se. What I am concerned about is the massive borrowing of money. This will raise Egypt's external debts by 40 percent, which is hugely risky. My main concern is that the government will not invest these loans, but use them to cover expenses instead. There will be no return. Indeed I fear that the Egyptian economy will not be able to pay off these debts.
The government says it will stabilise foreign exchange mechanisms and attract foreign investment. But in an ailing global economy, that′s easier said than done. If they fail to trigger an increase in economic growth, these austerity measures will lead to lower standards of living for the majority of the population. It′s a risk the government is willing to take simply because there is a lack of options.
And yet, on the other hand, the government is trying hard to pretend that all these austerity measures are not related to the IMF deal at all. Why?
Adly: It′s the usual kind of government propaganda. The political leadership is committed to reform and to implementing these austerity measures. They have been preparing to go in this direction for a while and are willing and able to implement them. In 2014, for instance, the government reduced the subsidies for fuel significantly, but got nothing in return. So the subsidy cuts were frozen. They are not going to proceed without getting something back. As the aid from the Gulf continued to shrink, however, they had to act. The conditionality on IMF programmes is a restraint.
Egypt four years after the January uprising
After the overthrow of President Hosni Mubarak and the coup against his successor, Mohammed Morsi of the Muslim Brotherhood, many Egyptians were relieved and delighted that Abdul Fattah al-Sisi was at the helm. Civil society, however, has paid a high price. By Diana Hodali
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The hopes raised by the revolution in 2011 were immense. The overthrow of Mubarak led to Egypt's first free elections and a new constitution. Mohammed Morsi of the Muslim Brotherhood was elected president. Often heavy handed and sometimes autocratic, he provoked mass protests. In 2013, he was ousted by army chief Abdul Fattah al-Sisi, who was then elected president.
The government and Egypt's President Abdul Fattah al-Sisi announced that they will implement a new system that provides subsidies only for those in need. What will this new system look like?
Adly: This is not yet clear. What might happen is a slash in fuel subsidies and an introduction of cash transfers for the poorer segments of society. They might end up mixing both measures and extend the smart card system that was introduced in 2014. The idea is to distribute smart cards for car owners with a certain quota for subsidised fuel. If customers purchase fuel beyond their quota, they have to pay a higher price.
Egyptian syndicates fear a mass sacking of state employees. Some are saying up to 2 million people might lose their jobs as a result of the controversial Civil Service Act. Is this realistic?
Adly: These figures are nonsense. The Civil Service Act was watered down considerably in the latest draft. What they want to do is encourage people to leave. The government wants to bring down the wage bill that has increased vastly since 2011 and limit the percentage of the state budget that is spent on wages. The wage bill increase has been even higher than inflation.
Six syndicates have rejected the VAT tax the government wants to implement in Egypt. In a statement, the syndicates stated that this tax ″will serve to further impoverish the poor″. They expect that the tax ″will result in increased incidents of tax evasion."
Adly: I doubt this. There is little room for tax evasion. There are a lot of VAT exemptions. It is not a flat rate. It will not impact the poor, but rather the middle classes. The middle classes, especially the lower middle class, provide the government′s bedrock of support. People who work for the state – politically it would be a risky move.
Boy stands in front of a stall near one of Cairo's markets (photo: Getty Images/J. Mitchell)
How best to tax: "VAT will not impact the poor, but rather the middle classes. The middle classes, especially the lower middle class, provide the government′s bedrock of support. People who work for the state – politically it would be a risky move," says Adly
The syndicates also suggest the state should tax high income earners via a higher bracket of income tax or corporate taxes, rather than imposing VAT upon the population. Is this a reasonable way to deal with the budget deficit?
Adly: I agree. There is room for more taxation in the country, especially when it comes to property. VAT is much cheaper politically, but no more so than say capital gains tax, higher taxation on incomes exceeding 1 million Egyptian pounds or a property tax. The government says it cannot tax capital. But what the cabinet could do is to tax property via income tax. This would not affect economic growth.
If tourists don′t come back to Egypt, how will the country deal with the lack of US dollars?
Adly: Structural problems exist and they are not being solved. The economy cannot work properly without this massive money influx from abroad. We are returning to the pre-revolution era of President Hosni Mubarak – the structural problems are exactly the same.
Arab spending boosts economy in Bosnia, but not all locals are happy
Reuters | Published on August 22, 2016 12:24 MYT
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Arab spending boosts economy in Bosnia, but not all locals are happy
Tourists from the Middle East enjoy along the Prokosko Lake near Fojnica, Bosnia and Herzegovina, August 20, 2016. REUTERS/Dado Ruvic
SARAJEVO: Abdulah Al Sanousi enjoys the breeze in the lush resort outside Sarajevo where his family bought a flat to escape the summer heat at home in Kuwait, one of thousands of new Gulf buyers whose investment has polarized local opinion.
They discovered mountainous Bosnia, where half the population is Muslim, after the Arab Spring which destabilised many traditional holiday destinations such as Libya, Tunisia and Egypt. The trend has picked up with more direct flights, new resorts and the end of visa restrictions.
Estate agents and local businesses have welcomed the economic boost. But in a secular country where many Muslims drink alcohol and wear European-style clothing, the arrival of a Saudi-built mall where no alcohol is sold and the sight of burqas and traditional Arab robes is worrying for some.
Tourists from the Middle East walk through Ilidza near Sarajevo, Bosnia and Herzegovina, August 19, 2016. REUTERS/Dado Ruvic
Tourists from the Middle East walk through Ilidza near Sarajevo, Bosnia and Herzegovina, August 19, 2016. REUTERS/Dado Ruvic
"People from the Middle East come here because of the nature and good weather, and very cheap prices for property and other goods," said 28-year old Sanousi, who works in the media industry in Kuwait.
"Many Muslims feel it's a good place for them, they feel they are with their people, they feel comfortable here," he said in the gated resort that is inhabited mostly by Gulf visitors. It was built by a Kuwaiti investor and opened last year.
The number of visitors from the United Arab Emirates surged to 13,000 in the first seven months of this year from 7,265 last year, according to hotel data from the Sarajevo tourist board. In 2010, there were only 65 visitors from the UAE.
Bosnia does not have a national tourism authority and data on land purchases is patchy in the Balkan country which has a fragmented government system.
Unofficial estimates put the total number of Arab tourists at between 50,000-60,000 a year, with about a quarter buying property.
The visitors bring much needed cast to the economy which has not recovered from the 1990s war.
But many local Muslims, who pray only at mosques or at home, were shocked when a group of Arab men dressed in traditional robes prayed outdoors at a popular weekend resort near Sarajevo last year. Others have been upset by a Saudi-funded mall that serves no alcohol or pork.
"I'm not glad that they are coming," said Amina, a Muslim pharmacist from Sarajevo in her 50s. "I'm worried about what influence they can have on our children if they stayed here."
DELICATE BALANCE
Many Bosnians remember the Arab fighters who came during the 1992-1995 war to fight with Bosnian Muslims against Serbs and Croats, bringing with them a stricter form of Islam which drew followers, some of whom fought in Syria and Iraq for Islamic State.
At the end of the war, some restaurants and cafes in the Ottoman-era old town of the capital stopped serving alcohol and pork and residents say they have now disappeared from the menu in other cafes which have started to do the same.
Esad Durakovic, a professor of Arabic studies at the University of Sarajevo, wrote in an editorial for the Depo news portal last week property purchases by Gulf visitors could hurt a delicate religious balance in Bosnia.
"This is not about tourists who come and go but about those who permanently stay on their property," he said, saying that it could fuel a desire for secession among some Bosnian Serbs.
"They will not want to live in "Muslimstan."
Travel and real estate agents dismiss those concerns, saying the country should welcome the money to help get the economy back on track and that the visitors only come in the summer to escape the heat at home.
"I'm really wondering why so many people are questioning (Arab investments) rather than getting profit out of it... I find it really sad," said Abdelal Mustafa, general manager of Saudi-based HR Holidays travel agency.
They want the state to improve legislation to encourage more visitors and investors in Bosnia.
"The legalisation blocks a lot of money," said Tariq Burjaq, executive director of the Kuwaiti Rawasi Real estate company, which is building a 25 million euro worth residential complex at the foot of Igman mountain, near Sarajevo, with 246 housing units.
Mirsada Gostevcic who was selling honey and blackberry and raspberry juice near the Sarajevo Resort where Sanousi's family has a property, does not see what all the fuss is about.
"I don't mind that Arabs are coming, I don't know why people are bothered with that. This is a country where life is difficult, and we are looking forward to earning more money," Gostevicic said as visitors from the Gulf strolled along improvised shop-stands where local farmers sold their produce.
Middle East-North Africa Metals and Minerals Have 30% of Global Reserves but Low Development
metals_minerals
Industry Segment: Metals & Minerals | Word Count: 1278 Words
SUGAR LAND--August 23, 2016--Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Johannesburg, South Africa)--Diversification of Middle East economies, aside from dependence on income from hydrocarbons, has been a stated good intention of governments since 2000. This aim is driven not only by the brittle nature of one-commodity dependence, but also by increasingly youthful populations seeking education and the type of jobs which would be available in a modern, mixed economy. In addition, there is the looming problem of the presence of millions of expatriate laborers and professional and technical staff, who in some countries outnumber the local-born nationals.
UAE to deposit $1bn in Egypt's central bank
#EgyptTurmoil
Egypt has been in financial turmoil and has seen foreign currency reserves plummet as leaders try to secure a financing deal with the IMF
Sheikh Mohamed bin Zayed receiving Egyptian President Abdel Fattah al-Sisi in the Emirati capital (AFP)
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The UAE has agreed to provide Egypt’s central bank with a $1bn deposit for a duration of six years in a new show of support for President Abdel Fattah al-Sisi, state news agency WAM said on Monday.
The announcement comes as Egypt grapples with a dollar shortage and dwindling foreign reserves, and as Sisi has been preparing public opinion for economic reform measures, including further subsidy cuts.
The $1bn deposit, which is for a six-year period, comes as part of the UAE's "unwavering position in supporting Egypt and its people" and in recognition of Egypt's "pivotal role in the region," WAM said.
In April, the UAE allocated $4bn to support Egypt - $2bn in investment and another $2bn to be deposited at the central bank to support foreign exchange reserves, but none of the promised transfers have yet materialised Reuters reported.
Egypt has already received more than $20bn in aid from Gulf countries that supported the overthrow of Sisi's Muslim Brotherhood predecessor Mohamed Morsi, but that has not stemmed the decline of its economy. Egypt’s net foreign reserves fell sharply to $15.536bn at the end of July, down from around $36bn before the 2011 revolution to oust long-time president Hosni Mubarak. In March, the bank devalued the Egyptian pound by 14.3 percent to 8.95 to the US dollar amid a shortage which has worsened in the past few months, with black markets offering the dollar at much higher rates.
IMF loan and Saudi electricity deal
Egypt this month signed a preliminary deal for a $12bn IMF lending programme contingent upon the government securing $5-6bn in bilateral financing for the first year and carrying out a reform programme aimed at plugging a budget gap and rebalancing the currency market.
The Gulf has also offered non-cash support and pledged to help bolster Egypt’s infrastructure.
The Egyptian parliament on Monday also approved an agreement with Saudi Arabia to connect the two countries' electricity grids.
Originally signed in Cairo on 22 November last year, the agreement will be financed by a loan from the Kuwaiti Fund for Arab Economic Development.
"The fund will provide 30 million Kuwaiti dinars ($100m) in a loan to be used for implementing this landmark project, which will become a key hub in the Arab electricity grid," said the parliamentary report on the deal, according to Ahram Online.
The two grids of Egypt and Saudi Arabia will be interconnected at a station in Egypt in the city of Badr and two other stations in Saudi in the cities of Medina and Tabuk.
"These three stations will be linked via aerial lines and naval cables in the Gulf of Aqaba and will help interconnect the two electricity grids of the two countries and boost their total power-generation capacity to more than 90,000 megawatts," said the report, adding that "they will represent the two biggest electricity grids in the Arab world."
Riyadh and the UAE have been key political and financial backers of Egyptian President Abdel-Fattah al-Sisi since 2013, when the then army chief helped lead a popularly-backed military coup against Morsi, Egypt’s first democratically elected president. However, the relationship has not always been a smooth one, with the death of King Abdullah in Saudi said to have impacted ties and Sisi also allegedly dismissing and criticising the Gulf last year in a string of leaked audio tapes that could not be independently verified.
Morsi is now in prison, as are tens of thousands of other political opponents.
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